Does a Failed Borders Presage a Doomed Bookstore Business?

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Unable to stand against the "headwinds."

Most retail industry watchers will tell you Borders' fate has not been a tough read. And so there were mostly expressions of sadness, rather than shock, when news hit this week that the retailer will seek permission to sell its remaining assets to liquidators Hilco Merchant Resources and Gordon Brothers Group. The chain's remaining 399 stores could begin closing as early as Friday.

Mike Edwards, president of Borders Group, had no lack of blame for the outside forces imposing themselves upon his chain.

"We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, eReader revolution, and turbulent economy, have brought us to where we are now," Mr. Edwards was quoted as saying in a press release.

On Tuesday, retailing experts from the RetailWire BrainTrust panel, however, had no trouble rattling off a list of management errors leading to the failure.

"In recent years company management made an increasing number of poor decisions, including changes in their frequent buyer/rewards program that angered some of their most loyal customers," wrote George Whalin, president & CEO, Retail Management Consultants. "Other poor decisions were simply closing all of their music and video departments rather than looking at their viability on a store by store basis."

However, Mr. Whalin contends that "the most damaging" misstep "was hiring people to work in the stores who had little or no interest in books, authors or literature," and that sentiment rang true with other BrainTrust panelists, as well.

"Borders forgot how to be a bookstore and wanted to become a cafe experience center, entertainment retailer, and -- at the end -- a flea market for over-priced toys and candy," commented Ryan Mathews, founder, ceo, Black Monk Consulting. "What got lost were the books and, when they were lost, stores had to become larger, labor costs soared and inventory costs went completely out of line. Finally, Borders started becoming a faux Barnes & Noble trying to 'out remainder' the remainder king."

Max Goldberg, founding partner, The Radical Clarity Group concurs that the demise of Borders doesn't necessarily translate into a demise for physical bookstores. "If Borders were so relevant," he wrote, "it would not have gone out of business. There are many choices for places to buy books, many of them offer a bigger selection and lower prices than Borders. Other book retailers may pick up some of the space, but most of it will go to different uses."

With close to 400 locations being abandoned, it raises questions about the vacuum created by Borders' closing.

Ralph Jacobson, global consumer products industry marketing executive, IBM pointed out in the RetailWire online discussion that, unlike many overseas markets, the U.S. is currently flooded with vacancies. "There is plenty of prime, inexpensive space available without these additional locations coming on the market," he said. "Bottom line, the industry, in all segments is very wary of opening new stores in this fragile market. ... Here in Los Angeles, there are not only still vacant properties from Circuit City, Mervyns Department Stores and others, but also brand new, never leased space available."

Some on the BrainTrust panel took an opportunity to ruminate about the future (if any) of brick 'n mortar book retailing.

"As Borders expires, new enterprises will evolve to take book retailing's place," wrote Gene Hoffman, one-time president of The Kroger Co. and former chairman and president of Supervalu. "Those new enterprises won't be conventional book retailers but companies that are on the leading edge of what current customers are responding to."

"Borders' announcement yesterday reminds me of the consumer electronics category so much, it's eerie," commented James Tenser, principal, VSN Strategies. "Now Barnes & Noble will be the last book chain standing, much as Best Buy has become the sole survivor in CE. Both survivors face intense price competition on cherry-picked assortments from Costco and Walmart, and intense price competition on expanded assortments from Amazon.com. Shoppers are left with a disheartening absence of interesting places to discover and interact with merchandise.

"B&N may pick up a few choice Borders locations, but I wouldn't go too far if I were them. When you control an overwhelming share of a shrinking channel, there's only one direction things can go."